April 3rd, 2021 12:32 PM by Jackie A. Graves, President
A down payment is not the only thing you need to save for when you're thinking about getting a mortgage. There are many other expenses that could come up so it's best to prepare your finances, so you won't be stretched too thin.
Looking forward to buying a new home? Before making such a big purchase, know that while your down payment may be one of the largest expenses, there are some additional fees and hidden costs to prepare for.
Understanding which specific costs to save for when buying a new house can help you live comfortably without stretching your finances.
How much money should I save before buying a house?
How much money you save for a home can depend on a variety of factors including:
While the general rule of thumb is to put down at least 20% so you can avoid private mortgage insurance (PMI), you can still get a mortgage by putting down less. By making a smaller down payment, you can free up more money for the other expenses that come with buying a home.
5 costs to save for when buying a new house
1. Closing costs
How much should you save for closing costs? Closing costs typically range from 2% to 5% of your home’s price. This means, if you purchase a $250,000 home, your closing costs could be anywhere from $5,000 to $12,500. Closing costs include things like your home inspection, appraisal, attorney fees, and taxes.
Sometimes you can negotiate that the seller pays some or all of the closing cost fees but this is not guaranteed so it’s best to save for these costs in advance so you can secure the purchase of your home.
2. Origination fee
Most lenders charge an origination fee which could be included in the closing costs. This fee ranges from 0.5% to 1.5% of your loan and covers things like underwriting and processing fees. Origination fee amounts can vary by lender. Shop around with ChangeMyRate.com to compare different mortgage and mortgage refinance rates and get a preview of how much your fees could be.
3. Moving costs
Have you thought about how much it might cost you to move? Whether you’re moving to a different state or the next town over, moving costs could add up quite a bit. You may have to rent a truck, boxes, and packing supplies. Plus, if you’re looking to hire movers, this should also increase your savings goal.
4. Initial repairs
As a homeowner, you’re in charge of all repairs and maintenance. Home repairs can sneak up at any time including just after you’ve bought the house. During the home inspection, you may see things you want to change or fix. Or maybe the seller gives you a deal on the home’s price in exchange for you taking over any necessary repairs.
Sit down and make a repair budget for your new home and save for these unexpected and horribly-timed repair needs for your home. Maintenance and repairs, after all, are a hidden cost of home buying. By saving money in advance, it'll help offset the inevitable expense.
Homeowners insurance and private mortgage insurance
In order to get a mortgage, you’ll need to set up and pay for homeowner’s insurance. Homeowner’s insurance can cover damage and destruction to your home, personal property, and even detached structures like an outdoor shed or garage. An insurance company can help give you the financial protection you'll need - although it will be tacked on to your monthly payments. ChangeMyRate.com helps you learn more about home insurance premiums and can help you compare insurance premiums before you commit to a policy.
Private mortgage insurance, on the other hand, is a cost you’ll incur if you don’t put 20% down. PMI payments go to an insurer who will cover a portion of the balance on your mortgage should you default on your loan. Freddie Mac estimates you might pay anywhere from $30 to $70 for every $100,000 for PMI.
Knowing your costs upfront can help you prepare enough savings
Buying a home comes with all types of fees and added costs. Still, this shouldn’t deter you from becoming a homeowner if it’s what you truly want. The key is to make sure you understand and prepare for the total costs of buying a home before committing to a mortgage. Visit ChangeMyRate.com to learn more about costs associated with homeownership and to compare rates and offers from lenders for free.
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